A situation in which real interest rates cannot be reduced by any action of the monetary authorities. This is liable to arise if prices are expected to fall. If general price falls are expected, holding money will produce an expected real gain equal to the expected rate of deflation. The real interest rate cannot be reduced beyond the point at which the nominal interest rate falls to zero, however much the money supply is increased. The monetary authorities are thus unable to promote investment by cutting real interest rates, even if investment would be responsive to a real interest rate cut if one should occur. See also zero interest rate.